The problem comes from, well, how do you do it? I mean, how do you break up JP Morgan Chase or Citibank or Bank of America or AIG? Trust-bust like we did with Standard Oil and the American Tobacco Company? It seems unlikely that such a turn of events would occur, and the feasibility of breaking them down would be next to nil. It’s easy for the FTC to come in and stop a merger before it happens. After the fact, tearing companies apart takes time and effort, particularly when those companies are so deeply entwined with the country’s ability to function economically.

What can be done is regulation — government needs to set in place disincentives (or at the very least, get rid of existing incentives) that create giant corporations. Simply dismembering corporations using anti-trust law has to be justified under the current law, which it isn’t. Not an anti-trust lawyer myself, but my guess is that none of the big banks probably qualifies under anti-trust law as sufficiently anticompetitive enough.

How about simply removing some of the incentives for being a giant bank? For instance, the rates at which big banks borrow from the Fed are lower than for other banks. If we chuck that out the window, the rise in costs for operating as a giant corporation hedging in exotic mortgage securities would be substantial.

With giant behemoths whose complexity is difficult even for their own operators and managers to untangle, one has to tread carefully when tearing them apart. If the U.S. government can create a regulatory regime that makes being a giant “bank” undesirable and unprofitable, the banks will move away from that model. Unfortunately, the “how” of the problem, one that Bob Herbert doesn’t acknowledge, is still unaddressed. Even if Congress were able to throw off the yoke of the financial services lobby (and it’s not clear that they could), it’s unclear what they would do about the situation anyways.

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Breaking up would work best competitively. A bank must be formed which operates on different business principles yet knows these banks intimately, therefore causing a flight of the honest talent that is not comfortable in these institutions. B. Then they must be called out so that not even the politicians cn afford to be on their side.

Again, this is all well and good, but the how is still a problem. Would the federal government simply use anti-trust law to break up the banks? Or should the government simply go back to “no interstate banks”?

It’s a lot easier to stop the mergers and acquisitions when they happen, through the SEC. It’s much harder to stop them after they have already happened.

Again, it’s not that I dislike your scenario; it’s just that the scenario could not take place in the reality we live in. Banks already have pretty low approval ratings and are highly disliked by almost all Americans, but that does not stop elected officials from protecting them.

To wit, the bank that attracts the best talent is not the bank with the best business principles. It’s Goldman Sachs.